The United States prides itself on its entrepreneurial spirit. Last year alone, nearly 5.5 million new businesses filed applications, the highest in U.S. history. However, a new scenario exists where small businesses forming in 2024 could be issued penalties of $500 a day and possibly jail time if they don’t adhere to new federal regulations that few have heard of.
The Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury, has quietly enacted new regulations under the Corporate Transparency Act (CTA) with the goal of safeguarding the U.S. financial system from “illicit use, combat money laundering and its related crimes including terrorism.” To meet these goals, the bureau now requires all new businesses to reveal what the agency refers to as “beneficial owners” within 90 days of formation. Existing small businesses have until Jan. 1, 2025, to comply.
The new regulations requiring small businesses to reveal personal information from any “beneficial owner” of the company, even though that person may not have any financial investment, has caught small businesses by surprise. Some small-business associations (SBAs) have filed lawsuits against the CTA, including in Alabama, which won its suit earlier this year, but the ruling only benefits the plaintiffs in the case.
Small Businesses in Michigan File Suit
Last month, the SBA of Michigan followed up with its own suit, challenging the constitutionality of the federal law requiring businesses to report their ownership to the government.“They’re trying to create a database of tens of millions of businesses and all the decision-makers in those businesses. They say it’s for national defense and criminal enforcement, money laundering, and other activities. The problem is they’re indiscriminately treating all small-business owners as if they’re guilty. It’s essentially a warrant-less search,” Brian Calley, president and CEO of the Small Business Association of Michigan (SBAM) and former Michigan lieutenant governor, told The Epoch Times.
The SBAM, representing more than 32,000 small-business owners across the state, has filed suit in the U.S. District Court for the Western District of Michigan in Grand Rapids. The lawsuit contends that small businesses must submit proprietary and sensitive information, including driver’s license numbers and passport information, to FinCEN without ever being accused of violating any laws.
“We don’t believe the federal government has the power to pass the act in the first place,” Mr. Calley said. “Most businesses will have to hire attorneys to help them understand which of their managers met the threshold of having beneficial control. We think it will be illegal under the Fourth Amendment” protecting U.S. citizens from unreasonable government searches and seizures.
Most Small Businesses Are Unaware
One of the significant concerns with the CTA is the lack of publicity the regulations have received, leaving many unsuspecting small businesses open to fines for something most have never heard of. Gene Marks, a small-business consultant with The Marks Group, told The Epoch Times he believes that will probably be solved at the end of 2024, but may cause a sprint to compliance.
“Some people have seen the headlines and ignored it, or they don’t know about it at all. It’s a big issue now because we’re getting close to midyear, and it may not really hit the news until the fourth quarter, and there will be a big rush,” he said. However, regarding the merits of the new regulations, unlike the SBAs which have filed suit, Mr. Marks says he doesn’t see the CTA as a huge privacy issue.
“I’m a CPA, and a lot of lawyers and accountants are going to make money from this. This is not that intrusive. You can probably get this info from the dark web anyway. Maybe it’s just that the Treasury Department is lazy, and they’d rather get this information reported.”
Mr. Calley is also concerned that few are aware of the new CTA regulations. “I’m trying to work this into every speech or talk I give to entrepreneurs. Even though this was in the Federal Defense Act in 2020 and was later thrown into a bigger massive bill later, it was never noticed. The government has done very little to tell businesses what their obligations are.”
Homeowners Associations Are Worried
Another group that’s concerned about the implications of the CTA are homeowners associations (HOAs) and condominium associations. Dawn Bauman, a vice president of the Community Associations Institute (CAI) and chief strategy officer and executive director of the Foundation for Community Association Research, says a lack of compliance, either through negligence or a lack of awareness, could affect condo and home assessments and overall management practices.“The penalties are scaring them and sharing this private information is concerning to them. Suppose a board doesn’t file. In that case, they will be violating a law and won’t be allowed to collect assessments to pay for maintenance and operation of the organization.,” she said to The Epoch Times. Ms. Bauman added that she’s another who’s worried about the lack of public information regarding the CTA. “There are 750,000 community associations in the U.S., and our membership only reaches 46,000 of them. There will be plenty not complying.”
The CAI and its lawyers also reached out to FinCEN to ask for an exemption to the regulations. “They told us they’re not considering exemptions right now and are just going to let this play out,” Ms. Bauman said.
